AmWatch - KKB Engineering : Enters fabrication league in earnest, with Talisman job BUY, 14 Sep 2015

STOCK FOCUS OF THE DAY

KKB Engineering : Enters fabrication league in earnest, with Talisman job              BUY

We maintain BUY on KKB, with an unchanged fair value of RM2.05/share. We had earlier pegged a 5% discount to an SOP value of RM2.16/share. KKB last Friday announced its 43%-directly owned associate Oceanmight had secured a wellhead platform fabrication contract with Talisman for the latter’s Kinabalu Redevelopment Project. The engineering, procurement and construction contract is scheduled to be completed by 2Q17. The contract sum was not made known.

KKB also announced awards from SESCO for the annual supply of steel products (by 3Q16) and from Sarawak Energy for the supply and commissioning of a 1,000-tonne fuel storage tank for a power station (by 1Q16). KKB said all three contracts were worth a total of RM171.1mil. This is KKB’s first major fabrication job. It bodes well for its prospects and is testament to its capabilities in the big league of O&G fabrication. The Kinabalu platform is reportedly located at a high-pressure, high-temperature zone, requiring fabricators to be from the top tier. Taking into account the better-than-expected 1H15 results and this latest development, we have revised upwards our FY15F earnings by 6%.

At the same time, we have cut our conventional job assumption for FY15F to RM80mil from RM250mil previously. Our new order assumption for FY16F and FY17F is now at RM200mil each vs. RM250mil and RM280mil, respectively, previously. Post its recent 2Q, it still had an outstanding order book of ~RM30mil. We maintain our new O&G fabrication order assumption for Oceanmight at RM150mil each for FY15F and FY16F. Following this latest contract, Oceanmight’s tender book stands at ~RM150mil. We believe other tenders are being pursued, to the tune of another RM120mil. KKB itself is aggressive pursuing jobs within Sabah and Sarawak. From its ~RM25mil maiden wellhead platform job that was completed in April this year, we gather that such fabrication jobs would have a significant positive earnings impact at the operating level. 

Others :

Sunway : Secures RM1.6bil Putrajaya building job             BUY

Economic Update : BNM maintains interest rate at 3.25%             

NEWS HIGHLIGHTS

IJM Corp : IJM Land unveils Secoya Residence

Manufacturing sector: Margma expects 20pc export growth

DISCLAIMER:

The information and opinions in this report were prepared by AmResearch Sdn Bhd. The investments discussed or recommended in this report may not be suitable for all investors. This report has been prepared for information purposes only and is not an offer to sell or a solicitation to buy any securities. The directors and employees of AmResearch Sdn Bhd may from time to time have a position in or with the securities mentioned herein. Members of the AmInvestment Group and their affiliates may provide services to any company and affiliates of such companies whose securities are mentioned herein. The information herein was obtained or derived from sources that we believe are reliable, but while all reasonable care has been taken to ensure that stated facts are accurate and opinions fair and reasonable, we do not represent that it is accurate or complete and it should not be relied upon as such. No liability can be accepted for any loss that may arise from the use of this report. All opinions and estimates included in this report constitute our judgement as of this date and are subject to change without notice.